EuroBusinessMedia (EBM): Sanofi, a global and diversified healthcare leader, reports results for the second quarter of 2012. Chris Viehbacher, welcome. You are the CEO of Sanofi, what are your comments on your results for the second quarter 2012 -- was the decline in earnings-per-share in line with your expectations or steeper than expected?
Chris Viehbacher: Results for the second quarter are no surprise. May 17th, we lost exclusivity for Plavix®. For the few months leading up to that date, Plavix® was the world’s biggest selling medicine. But of course, this is something we’ve anticipated for the last three years. We built a whole strategy around not only making it through the patent cliff, but actually preparing the company for a period of sustainable growth afterwards. Clearly there is an impact on the quarter and we are going to see that for the next four quarters which are going to have comparative quarters where Plavix® was still in existence. And as a result, earnings-per-share are down about 17% on a constant exchange rate basis because of the loss of exclusivity. When I look at the underlying performance, I look at our growth platforms, well there I see that our strategy has been working and in fact sales were, on a constant exchange rate basis, pretty much even with the quarter last year. So given that we are still suffering patent expiries on a few other products, like Lovenox® on a year for year basis or Eloxatin®, I think actually the company has come through the patent cliff extremely well and is very well positioned for growth going forward.
EBM: Where do you stand today with the so-called patent cliff? Are we pretty much done now, or are there additional rounds of patent expiries to be expected?
Chris Viehbacher: Well, the patent cliff affects our company in a couple of different ways. There are a number of products which are consolidated in the sales line, products like Plavix®, Eloxatin®, Taxotere® in Europe for example. And if we take those nine products that were in our sales line in Q2 of 2009, the peak sales of those products were €2.2 billion on a quarterly basis. When I look at that same list of products in Q2 of 2012, the sales are down to €750 million. So we’ve lost, on a quarterly basis, really over €1.5 billion. That meant that 2011, as predicted, was our trough year in terms of sales. Now, as we look to 2012, we have a slightly different situation, because we have Plavix® and Avapro® which are not consolidated in the sales because they are in a joint venture with Bristol-Myers Squibb, but clearly they contribute significantly to the bottom line of the company. And from the 17th of May we have seen the loss of exclusivity for Plavix® and we have said that this year we will have a loss of after-tax income of about €1.4 billion associated with the loss of exclusivity of both Plavix® and Avapro®. We also will lose, on the sales line this year, Eloxatin® in the month of August in the United States, but really by the time we get to the end of the year, we have about 5% of our sales in small molecules in US and Western Europe, so if you like we’ve been through this deep patent cliff, but we come out of it with one of the lowest patent exposures in the rest of the industry, and I think that gives me the confidence to really look at a period of growth going forward.
EBM: What is your update on your Emerging Markets growth and how sustainable is it?
Chris Viehbacher: Emerging Markets is a key strength of Sanofi. We are the #1 player in this market. It is our single biggest region. We have seen sales of €2.8 billion in the quarter, up almost 10%. This is a business where we have been a long time, we have a broad geographic spread of business and we’ve got a pretty diversified portfolio of products in those countries. To give you an idea about the geographic spread, we sell twice as much in non BRIC countries as in BRIC countries. So you’ll find lots of our competitors are in India and China, but we are actually also strong in countries such as Columbia and Vietnam and Indonesia and that is really what has enabled us to grow our business in Emerging Markets, because we shouldn’t forget that there are over 80 countries in Emerging Markets. You can’t treat them generically – each of them has their own Healthcare system, each of them is going through a different economic situation. But what I like is that this is a diversified basket of countries, so that we are able I think to have more consistent growth on an annual basis versus some of our competitors. But this is also where the strategy of the company has been important. In most Emerging Markets people don’t have healthcare insurance. So they are paying for medicines out of their own pocket. So you have to have a product offering that meets the pocket book of consumers. That’s why Consumer Health is important, and Vaccines, and Branded Generics and we have a broad range of products which are also – and this is very important – produced locally. So we can then sell these products at a price point that matches the pocket book of consumers. So this is our #1 region, we are the #1 company in this area, I think it’s a true strength of Sanofi and I think it’s a competitive advantage we’ll be able to keep – because we have that production locally, because we have that adapted product line and also importantly, we shouldn’t forget about this, we have depth of management. So we know the markets, we know the regulations and we know customers. So I’m pretty confident about how we are looking in Emerging Markets going forward.
EBM: What is the outlook today for your diabetes franchise, and Lantus® in particular at a time when the market is wondering about competitors' offerings?
Chris Viehbacher: I think the first thing we should do is step back and look at the diabetes market. This is an extremely strategic segment of the market. We are seeing a dramatic increase in the incidence of type-2 diabetes around the world. This is a function of life style, this is a function of the urbanisation of people and there are expected to be over 350 million people this year who will suffer from type-2 diabetes. So this is an enormous market place and of course with the regimen of treatment, at some point most people end up on insulin. So this is attractive for a lot of people and it’s normal that there will be competition coming in, but we believe we have the Gold Standard with Lantus® and when you look at this product you continue to see extremely strong performance. We’ve got over 80% market share in the United States and the product is growing at over 16%. Our overall diabetes franchise up 13% in the quarter and what we have tried to do is really to turn the company into a true diabetes company. We are not just there with Lantus®, Apidra® is now coming on strong, we have been able to launch an iBGstar®, so a blood glucose meter which actually will help you to manage your diabetes in addition to simply measuring your blood glucose. We have a portfolio of new medicines coming along, we are expecting the approval, at least in Europe of Lyxumia® and we will file Lyxumia GLP-1 in the United States later this year. We have a new formulation in phase III of Lantus® coming forward, so this is an extremely important portfolio of products for us and a major growth driver and I think Sanofi is clearly a leader in diabetes care and we intend to be so for quite a long time.
EBM: What is your progress report on Genzyme's Rare Diseases business? Where do you stand on your entry into the Multiple Sclerosis space?
Chris Viehbacher: The first think I think we want to say about Genzyme is that I think the integration has gone extremely well. When you think about the fact that we were marrying a French company with an American company, a biotech company – one of the original four biotech companies - with a Big Pharma, we probably made life as difficult as we could for ourselves with the integration and I must say I’m extremely pleased with way the teams have come together. And I’m very proud of the way that Genzyme has been able to start to contribute already to the growth of Sanofi. We redefined Genzyme, we focused it on Rare Diseases and on Multiple Sclerosis. Clearly the main thing that we had to get right was the production. We know that the Rare Disease business had suffered because of production problems in the past. We believed through the integration that we could bring some help to the Genzyme team, in being able to re-establish production - and we did that this year – we have a new factory in Framingham that has been approved, which allows us to have new capacity for Fabrazyme® against Fabry’s disease that allowed us to simplify the Allston facility where most of the production problems had occurred and that has allowed us to free up capacity for Cerezyme® so we now have a facility dedicated to Cerezyme®, a facility dedicated to Fabrazyme® and a facility for Myozyme®. And we are already seeing that in the results; we had a very strong growth of Fabrazyme® because we’ve been able to regain market share again and we’ve seen significant growth. Stock levels on Cerezyme® are coming back and we’ve been able to get more patients back onto full dosing and I think we are going to see a continued improvement in supply for Cerezyme® and Myozyme® has been performing well. And the most important thing is that our people are now able to go back and able to grow the business instead of going back and having to deal with the supply shortages. This has had a positive impact on morale and motivation within Genzyme, because their mission has always been to help patients in Rare Diseases, so I’m actually very excited to see how that business isdeveloping. We’ve seen the business grow at 9%, with particularly strong growth on Fabrazyme®, so I think we are well on track with production. The other exciting opportunity within Genzyme is now to launch two major medicines in Multiple Sclerosis. Here we have coming along first Aubagio ™, which is an oral therapy which has shown interferon-like efficacy, but with the convenience of an oral therapy and we’ve been able to publish results that demonstrate not only benefit in terms of relapse, but also an improvement in the erosion of disability scores. So Aubagio™ is clearly an opportunity for us and following immediately on its heels is Lemtrada™. And Lemtrada™ is a game changer in Multiple Sclerosis. Here we are talking about not a therapy you take every day, every week, every month, but you’re going to only take it once in a year, you are going to get five infusions and then one year later you get another three infusions, and then that’s it. And we are talking about a medicine that seems to rebalance the immune system and we’ve seen some extraordinary results on efficacy. We’ve got very manageable safety, so I think if you take the two products, an excellent product that’s an oral, we’ve got a product that’s really demonstrated better efficacy than anything that’s ever been tested in Multiple Sclerosis to date. I think we’ve got an extraordinary opportunity in Multiple Sclerosis, and that comes back to why we see Genzyme as one of the key growth drivers of the company going forward.
EBM: What is your update on the growth prospects of your vaccines business, which recently suffered from a shortage of Pentacel®? And also, what is your opinion on the results of your Proof of concept study using your dengue vaccine candidate?
Chris Viehbacher: Well, sales in the quarter grew 3% to €783 million. There’s a very good underlying growth in there, we had an extraordinarily strong flu season in the Southern Hemisphere, in fact a record flu season, so that was very strong. We had good performance on Adacel® and Menactra®. We have run into a set back on supply of Pentacel® which will last probably until the first quarter of 2013. We are continuing to supply, but not as much as we would like. However, we have a new opportunity and that is our IPV vaccine in Japan, Imovax®. This is a significant opportunity for us in Japan, but it’s also an opportunity outside. With the fact that there have been no new polio cases in India, there is now going to be a gradual shift over the next several years to the IPV vaccine from the oral polio vaccine. I think Sanofi is extremely well placed to do that, to take advantage of that. If we look at the dengue vaccine, we announced a proof of efficacy study. Here it’s important to recognise that it’s a four-valent vaccine. We actually demonstrated that we could generate an antibody response for all four serotypes of the virus. And this was the very first study of efficacy of any dengue vaccine in the world really, so we are very excited to see that there has actually been response against three out of the four serotypes. And in particular because this is a vaccine that will be used in a wide population, the safety profile is extremely important and I think we saw extremely satisfying safety results with this vaccine. The fourth serotype didn’t respond to the virus that is circulating in Thailand, and work is on-going to understand that, but we are obviously still continuing with the major phase III programme now, we have a significant study on-going in Latin America and another one in Asia. There is no treatment for dengue today. Essentially half of the world’s population is actually at risk of being infected by dengue. When people experience dengue outbreaks, this can be a major burden on hospitals, so it’s very important from a public health point of view, from a patientperspective, that we get some level of protection going for people because, as I say, there is no treatment, so I think this is going to be a significant contributor to our vaccines business going forward.
EBM: There is an enormous buzz in cholesterol treatment around the PCSK9 target at the moment. Could you tell us why you are excited about this R&D project?
Chris Viehbacher: The PCSK9 is a subcutaneously administered, fully human antibody relating to the enzyme PCSK9 which binds to receptors responsible for the clearing of cholesterol essentially. It was noted actually in a number of people who have naturally very low levels of cholesterol that they had a genetic mutation which meant that the PCSK9 wasn’t present, so the hypothesis was that if you could suppress this enzyme you could improve the body’s ability to clear cholesterol. And in fact when we tested this we discovered that is in fact true, and in fact we have seen some extraordinary results in three phase II studies where we have been able to reduce LDL-Cholesterol by as much as 70% on top of high dosestatins. So when we look at the unmet need we see a number of different cases. You have people who suffer from something called familial hypercholesterolemia, these are people who have very high levels of cholesterol, even after takingstatins. You have a number of people who can’t toleratestatins, so therefore they don’t have a solution in being able to lower their cholesterol, and the third aspect is that we have seen in populations of patients who’ve suffered already a heart attack that there is a tremendous opportunity to avoid a second heart attack if you can get their cholesterol levels down towards 50 - if you use the American measure of LDL-Cholesterol. Now, in most cases, patients cannot do that with existing therapy, so there’s a huge opportunity for those who can’t tolerate statinsor who’ve had already an MI or other cardiovascularevent, or people who have these naturally very high levels of cholesterol and who need something stronger to be able to reduce their levels. It’s estimated that this population in total is around 21 million people. There are clearly a number of our competitors who are pursuing this target. At this point in time, the PCSK9 that we are developing in collaboration with Regeneron has the potential to be first in class and we appear to be in the lead for that. So this is a very exciting project, it’s one we have just kicked off in phase III and obviously we look forward to seeing the results.
EBM: In 2008, when you joined Sanofi, you put in place a strategy to go through the patent cliff and transform the Group; one of the pillars of this strategy is to increase innovation in R&D. Where do you stand today and what progress has been made?
I’ve been in this business for close to 25 years and I like to bore my team by saying this is my fourth patent cliff in my career. The strategy of the company was really designed to avoid a fifth one. You avoid a fifth one by reducing the company’s dependence on patents and the inevitable uncertainties around R&D. So that’s why we invested in the growth platforms. These are businesses that have different barriers to entry other than patents, and it might be know-how as in the case of Vaccines; it might be significant capital investment in the case of Biologics; it could be Emerging Markets where intellectual property has never been very strong or it might be Consumer Health where brands really protect the business. But that has put us on a growth track that means that we don’t have to rely on R&D and patents. But it was never intended to be a way of getting out of innovation.
Innovation is always going to be at the core of this company. And I think that we’ve got this sustainable growth outlook, [that] allows us to really focus on high quality R&D and get away from some of the treadmill of always having to have a certain number of projects coming along, which means that you compromise on quality. Now, three years ago we completely revamped our development. We wanted to make it not only much more efficient, but we really wanted to be rigorous, because you really spend most of your money when you go into the “D” part of R&D. And when I first became CEO, we did the pharmaceutical industry version of the stress test on our portfolio; we discarded 40% of our late stage pipeline - which was unprecedented in the pharmaceutical industry - but it established a set of decision criteria, which means that nothing goes into Development unless we are sure it’s been through a rigorous proof of concept and that we’re comfortable that that product represents a true value out in the market place. More recently we have turned our attention to the “R” part of R&D which is Research. This is where the innovation of the business occurs. And here we didn’t see any company that’s really completely developed a new model, so we wanted to be much different and take a different approach. It’s an approach that’s based much more on collaboration, with academic institutions, with biotechnology companies; the science has just become extraordinarily complex. No one institution or organisation today can do everything it takes on a R&D basis. The future requires us to work in collaboration. But because of that collaboration, you need to have your own teams in research very much embedded in some of the best ecosystems for research that you can find. And an ecosystem is where you’re going to find the world’s top universities, where you’re going to find academic and publicly funded research institutions, where you’re going to find venture capital and biotechnology companies, where you’re going to find some of the best research minds in the world. We find that for example in Boston and Cambridge. And as a result we have gone through a process of revamping our entire research organisation in the US and Europe to align our teams with those ecosystems, and now more recently we’ve done the same in France and we will align our research in internationally recognised ecosystems of Lyon, Strasbourg and Paris. We believe that this gives us an opportunity to really become involved in some of the best science in the world, to be diversified in looking at sources of innovation. We have thus created a hub in China, there’s a hub in Germany, a hub in France and a hub in the United States based in Boston, in Cambridge. We are already seeing some of the early fruits of that reorganisation and I think it’ll take Sanofi into a whole new era of research and innovation.
EBM: Lastly, do you reconfirm your guidance of a 12 to 15% decline in earnings per share this year?
Chris Viehbacher: I think the business is performing well. If I look at the first half, it’s in line with our guidance. We’ve had very good performance of our growth platforms, I think we’ve clearly got very tight control over our expense baseand management of our costs, so I think the business is doing very well. Clearly we have lost Plavix® and Avapro® this year, as expected and that will be a hit to the bottom line of about €1.4 billion as we announced already last year, and so that is what really will lead us to a decline in earnings of between 12 and 15%. But again, if I look at the business, it’s performing well, and so even though we are in a very difficult macro economic environment in many parts of the world, I’m confident that we’re going to be able to achieve our stated guidance for the year.
EBM: Chris Viehbacher, CEO of Sanofi, thank you very much.
Chris Viehbacher: Thank you Adrian.
